On Generational Equity, Healthcare, and Keynesian Economics

This week and next, The American Prospect, in conjunction with The Democratic Strategist, is proud to sponsor a special forum titled: Progressive Perspectives on the Future of the New Deal/Great Society Entitlement Programs.

This unique forum will proceed through seven essays—from Henry Aaron, Andrew Levison, Bob Kuttner, Bill Galston, Dean Baker, Mark Schmitt, and Will Marshall—with occasional summaries from the co-moderators, Kit Rachlis of the Prospect and Ed Kilgore of the Strategist.

The distinctive goal of this forum is to offer a “progressives-only” debate on entitlements—a debate that is often avoided or distorted by the necessity to resist conservative ideological assaults on the New Deal and Great Society safety net or by media-driven elite “deficit hawk” campaigns that seem to begin with the assumption that America’s only fiscal problem stems from “unaffordable” or “runaway” entitlements.

That in the mainstream media “entitlement reform” has become a synonym for structural changes in entitlements designed to cut benefits, shift costs to beneficiaries, or abandon national responsibility for these programs, has inhibited an important intra-progressive debate over how the safety net can be enhanced, sustained, and harmonized with other important progressive priorities.

Progressive discussions of this subject are also frequently hampered by the conflation of substantive arguments about social policy itself with those focused on more practical matters of political strategy. 

Now, we believe, is an ideal time to re-open and clarify the intra-progressive debate over the future of Social Security, Medicare, and Medicaid (and perhaps food stamps and the post-entitlement cash assistance program Temporary Assistance for Needy Families, which also form elements of the safety net). After all, declining federal budget deficits have taken a lot of the steam out of the “fiscal crisis” campaigns on the right and center-right. Moreover, the abandonment of any “grand bargain” budget negotiations for the foreseeable future (mainly due to conservative refusal to consider tax increases on the wealthy) has taken “entitlement reform” proposals—particularly those conditionally proposed by the Obama administration—off the table as well. And finally, the “wait and see” period we have entered with respect to implementation of the Affordable Care Act means we can now discuss long-term prospects for Medicare and Medicaid without assuming these programs are eternally defined by their present role in the “Obamacare” system.

We have asked a broad spectrum of progressive thinkers and writers to offer their thoughts on the future of entitlements. Some of these individuals are generally identified with a staunch defense of Social Security and Medicare as they are now, others fear entitlements violate intergenerational equity or threaten non-entitlement “investments.” What they all share, however, is a fundamental commitment to the preservation and strengthening of a robust social safety net as a central goal of progressive social policy. 

Aside from the light this forum may cast on the options facing progressives in maintaining a strong social safety net and the economic climate needed to sustain it, we also hope the forum will offer a model for an enhanced intra-progressive discourse. With the Obama administration soon to enter its final stage—and with progressives coming out of the defensive crouch conservative political tactics have induced—it is likely that we will soon witness one of those periodic “struggles for the soul” that occur when values, goals, policies, strategies and tactics are all under active discussion.

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As a practical matter, after the initial essays in this forum have been presented, we will then entertain rejoinders and follow-ons from all participants—and if appropriate, from others. The forum will continue until all that’s worth saying has been said.  We hope you enjoy, and most of all, benefit from, this discussion of Progressive Perspectives on the Future of the New Deal/Great Society Entitlement Programs.

My co-authors made many useful points in their pieces. They also made some claims with which I disagree. Rather than address their comments individually, I will make three general points in response to issues that came up in several of the pieces.

First, generational equity has almost nothing to do with tax and transfer policy; we give our children a whole economy and society. If we hand our kids a government with no debt burden and no taxes to pay for their parents’ Social Security, but a wrecked infrastructure, a devastated environment, and an antiquated capital stock we’ve have not done well on the generational equity scorecard.

We pointlessly hand the right an enormous political advantage when we imply that the share of tax revenue going to programs for the young versus programs for the old has anything to do with generational equity. We’ve already lost almost $8 trillion in output from the Great Recession (more than $25,000 per person). This lost output, coupled with the destruction to families’ lives resulting from long-term unemployment and underemployment will do hugely more to hurt the life prospects of our children and grandchildren than Social Security and Medicare taxes ever could.  If we want to point fingers at generational villains we should be looking at Greenspan, Rubin, and the Wall Street gang.

If we sustain decent economic growth there is no plausible story in which workers twenty or thirty years from now won’t be far wealthier on average than they are today. Assuming normal economic growth, real wages will be on average more than 40 percent higher in 2040 than they are today. If workers in 2040 have to pay another 2-3 percentage points of their income in taxes, that doesn’t amount to generational inequality in any meaningful sense of the term. If large numbers of workers actually are not living as well as their parents or grandparents it will be due to intra-generational inequality, not inter-generational inequality.

As a sidebar, the debt is mostly passed on as assets to our children. We’ll be dead, so they will hold the bonds. There is an issue of debt held by foreigners, but people troubled by that one are looking at the wrong deficit. The problem with foreign debt is the trade deficit, re-read an intro economics textbook if this is not clear.

The second point is that the U.S. health care system is broken. We pay more than twice as much per person as people in other countries without anything to show for it in terms of outcomes. Yes, it is hard politically to attack insurers, doctors, drug companies and other health care providers, but it is also hard politically to cut Social Security and Medicare. It is bizarre that anyone who considers themselves progressive would be anxious to take on the politically difficult task of cutting Social Security and Medicare, but back away from going after the people responsible for outrageous health care costs.

I have repeatedly advocated trying to push for more open trade in health care as an end-run around the powerful interests that keep up costs. This is a way of focusing on the fact that the debate has nothing to do with free market ideology, it is a debate over protecting the high incomes of health care providers pure and simple. While I find allies on this one on the more conservative side of the political spectrum, progressives seem to find the concept confusing. I know it’s hard for intellectuals to think about new ideas, but sometimes it is necessary to try. The effort to contain health care costs is one such case. (It should be noted that costs have grown much more slowly over the last six years.)

Third, Keynesian economics is true regardless of its popularity, just like gravity and global warming. If people do not accept Keynesian economics as it has been presented, then we have to find other ways to present it. (It doesn’t help that our “progressive” Democratic president is on the other side on this one.) The reality is that we will not have full employment without large budget deficits or bubbles unless we get the trade deficit down. There is no way around this fact.

As I explained in my original piece, any serious effort to get the trade deficit down means lowering the value of the dollar. We could probably reduce the value of the dollar against other currencies if it were a political priority of the Obama administration. Unfortunately that does not appear to be the case. This leaves us budget deficits or bubbles. Better framing or good rhetoric won’t get around this logic.

The one other option is re-dividing the work. Work sharing and more leisure have much to recommend them. If we can’t get around the stalemate blocking the expansion of the pie, a fairer division among the pie-eaters seems the best alternative. After all, it is not their fault they are unemployed. It is the fault of the policymakers in Washington. 

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